Last summer and early fall there was a rash of shareholder derivative lawsuits – mostly filed in California, mostly filed against tech companies – based on allegations that the target companies’ boards had breached their duties by failing to include African American board members. The filings of these kinds of lawsuits trickled off after the California legislature adopted a bill requiring companies based in California to meet specified board diversity requirements. However, if a recent lawsuit filied is any indication, the board diversity lawsuit filing trend may not have entirely played out after all.


On February 9, 2021, a plaintiff shareholder launched a new board diversity lawsuit, this time against the board of Micron Technology. As discussed below, this most recent lawsuit is different than the earlier lawsuits in certain key ways. A copy of the complaint against the Micron Technology board can be found here.


Background and Lawsuit

Micron Technology designs and manufactures digital memory and storage devices. It is a Delaware corporation with its corporate headquarters in Boise, Idaho.


On February 9, 2021, a plaintiff shareholder field a derivative lawsuit in the District of Delaware against Micron Technology’s board of directors, as well as against the company itself as nominal defendant. The complaint alleges that since at least 2018, the company has “publicly held itself out as undertaking to improve diversity, equality, and inclusion within the company,” while at the same time the company’s board has “lacked diversity at all relevant times,” without any Black directors and the only “director of color” being the company’s CEO, Sanjay Mehrotra.


Though the company  has, according to the complaint, published an annual diversity and inclusion report since 2018 “touting their diversity efforts,” the defendants’ actions demonstrate that “these are hollow words,” as the company’s workforce “had not become more meaningfully diverse during this time.” While the company’s workforce was 1% Black and 4% Hispanic in 2018, two years later, in 2020, the company’s workforce was still 3% Black and 4.6% Latinx. In addition, the complaint alleges, the company’s self-defined senior leadership has not grown meaningfully more diverse during this time.


The opportunity to diversify the workforce during the period 2018-2020, the complaint alleges, was “present but squandered,” as the overall workforce grew by over 5,000 employees during the period, from approximately 34, 000 to 39,292, with additional opportunities to diversify by replacing employees in the ordinary course of employee turnover.


The complaint alleges that the defendant board members “breached their fiduciary duties by personally making and/or causing the Company to make materially false and misleading statements which failed to disclose that”:


(1) despite public assertions to the contrary diversity was not a key priority of the Company; (2) despite assertions to the contrary the Company was not meaningfully diversifying its workforce; (3) despite assertions to the contrary the Company was not diversifying its leadership or its Board of Directors; (4) that the Company failed to maintain adequate internal controls, and (5) that the independent auditor the Company repeatedly reselected to evaluate its internal controls was neither independent nor effective at ensuring the adequacy of the Company’s internal controls.


The complaint further alleges that the board members also breached their fiduciary duties by causing themselves to receive “excessive compensation, including because certain executive compensation was nominally tied, in part, to the achievement of diversity-related goals.”


In addition, the complaint alleges, by including “false and misleading statements concerning the Company’s diversity efforts” in the annual proxy statements during the period2018-2020, the individual board members violated Section 14(a) of the Exchange Act.


The complaint alleges that because of the alleged actions and inactions, the Company has, and will have to expend many millions of dollars. The complaint also alleges that the demand on the board to take up this litigation is excused because a majority of the board cannot consider a demand against themselves on behalf of the company “with the requisite level of disinterestedness and independence.”


The complaint asserts substantive claims against the board members for breach of fiduciary duty; unjust enrichment; waste of corporate assets; abuse of control; gross mismanagement; and violation of Section 14(a) of the Securities Exchange Act of 1934.


In terms of relief, the complaint seeks the recovery of damages to the company as a result of the alleged violations; and an order directing the company and its board to protect the company from further damage, among other things by permitting shareholders to nominate at least four members to the company’s board, including at least three black candidates or color, establishing a minority hiring and hiring oversight function, and tying at least 30% of executive compensation to the achievement of diversity and inclusion goals.



This new lawsuit involving Micron Technology is the first board diversity derivative lawsuit to be filed against the board of a public company since the lawsuit that was filed in late September 2020 against Cisco Systems, just before California Governor Gavin Newsom signed into law the legislation that the state’s legislature had passed requiring companies based in California to meet certain board diversity requirements (the details of the California legislation are discussed here). This sequence of events at the end of September seemed to suggest that the enactment of the California legislation in certain ways superseded the goals this type of litigation sought to achieve.


However, it is important to note that most of the board diversity litigation filed last summer was filed against California-based technology companies (although, to be sure, not all of the companies involved were technology companies – for example, Monster Beverage was one of the companies involved – and not all of the companies were based in California – as one of the companies hit with a board diversity suit was Danaher Corporation, which is not based in California).


Though Micron Technology is a tech company, it is based in Idaho, not California. Because it is not based in California, the California legislation is irrelevant, which may explain why this lawsuit was filed despite the sequential pattern I noted above. However, Micron Technology’s shares are traded on NASDAQ, meaning that it would be subject to the proposed NASDAQ board diversity guidelines, assuming the listing guidelines are approved by the SEC.


Though the NASDAQ guidelines, if enacted, would seemingly compel Micron to diversify its board, the NASDAQ board diversity requirements are not as extensive as the board diversity proposal the new complaint seeks. In addition, the new complaint seeks a variety of other relief beyond just board diversity itself, including a number of other measures purportedly calculated to advance company leadership and company workforce diversity.


As noted above, this new lawsuit differs somewhat from the prior diversity lawsuits, at least to the extent the prior lawsuits targeted California lawsuits. This new lawsuit is different in another respect which is that most of the prior lawsuits were filed by the same plaintiffs’ law firm, Bottini & Bottini. The two prior lawsuits that were not filed by Bottini & Bottini were filed by the Robbins Geller law firm. This lawsuit was not filed by either of these two firms; rather, it was filed by the Farnan law firm (based in Delaware) and The Rosen Law Firm (based in New York).


The involvement of yet more law firms in this apparently evolving litigation trend suggests that the trend could become more generalized, and perhaps involve even other law firms, rather than being something of a pet project for a few activist firms. The involvement of these new law firms may also suggest that there could be more of this type of litigation to come. At a minimum, the involvement of these new firms means that this new lawsuit complaint does not follow the almost invariable formula of the prior lawsuits (which were in many respects nearly identical).


The filing of this new lawsuit may suggest that the board diversity issues that took on such prominence last year will continue to be the source of activism and perhaps even further litigation. The new lawsuit also suggests that board diversity and workforce diversity issues could continue to be source of scrutiny and, potentially, litigation.